Fear and Doubt; Auction Action: Best of Kass

Top thoughts on stocks and the markets from TheStreet's Doug Kass.

Takeaways and Observations
 
Originally published Sept. 28 at 3:02 p.m. ET
 
"Why make trillions when we can make billions?"
 
I started the day with a multi-part series, "Sell FANG." Here, here and here.
A Bull Market in Complacency -- why volatility is low and corrections are non existent.
 
No trading to today with the exception of a small add on to my large SPDR S&P 500 ETF Trust ( SPY) short on the ramp at around 2PM (done at $250.30).
 
The market started out lower and has consistently rallied like Groundhog Day this afternoon.
 
Fear-and-doubt is an endangered species.
 
Unless something important happens in the market -- I might call it a day as I am exhausted from spending a few days in the hospital earlier in the week.
 
* The US dollar weakened after recent strength.
* The price of crude dropped by -$0.57 to $51.57/barrel.
* Gold rose by +$1.60 to $1290.
* Ag commodities: wheat -7, corn -1.50, soybeans -6 and oats +1.50. The recent strength in fertilizer stocks hasn't been accompanied by higher ag commodities prices.
*Lumber an outsized gain of +9. Not sure why.
* Bonds were flattish. The 10 year US note yield is at 2.31% after trading three bps higher earlier in the day. (at an important technical pivot spot) The 2s/10s curve rose by two basis points.
* Municipals fell modestly and high yield rallied small.
* Banks moved higher. Wells Fargo ( WFC) underperformed today.
* Brokerages flat.
* Insurance was notably weak, though Radian ( RDN) made another new monthly high.
* Autos settled down as the recent rise stalled.
* Ag equipment remains a force to reckon with.
* Biotech weakened all day - led by Allergan ( AGN) and Gilead ( GILD) (both -$3) Spec biotech also got hit. I would now be cautious in the group.
* Old tech was subdued.* More weakness in optical space -- near recent lows.
* Retail also locked in neutral.
* Media fell - led by Disney ( DIS) , an investment short, and more weakness in Comcast ( CMCSA) .
* (T)FAANG was mixed -- but in an overall sense underperformed. (See my Three Part Series on why I would Sell FANG) I shorted more Facebook ( FB) and Apple ( AAPL) on Wednesday's strong rebound.
 
Here are some value-added contributions on our site:
 
1. I enjoyed Jim "El Capitan" Cramer's delightful column on his family.
2. Skip on the pound.3. Gary "The Sun Will Come Out" Morrow (technically) disses one of my shorts, Facebook. I added to my FB short on yeseteray's gap higher.4. Ed Ponsi "Scheme" says Costco isn't afraid of no ghosts!5. Rev wants vol.
 
Position: long QID, SQQQ large; Short SPY large, DIS, SBUX, AMZN, FB, TLT, AAPL.
Auction Action
 
Originally published Sept. 28 at 1:39 p.m. ET

We finally got a good Treasury auction as buyers took advantage of the sharp selloff over the past 3 days. The 7 year auction yielded 2.13%, about 1 bp below the when issued. The bid to cover of 2.70 was above the one year average of 2.53. Also of note, direct and indirect bidders took 90% of the deal vs the previous twelve month average of 79%.

Bottom line, I'm going to chalk up this solid auction to the recent cheapening, which made it that much more attractive. The 7 year yield sits at a two month high. In response, the 10 year U.S. note yield is back to unchanged on the day at 2.31% after touching 2.34% this morning. The short end has also bounced too with the yield down at 1.45-.46%.
 
With respect to rate hike odds in December, they stand at 66%. On hopes for tax reform and the potential growth boost, the 2s/10s spread is at a one month high but at 85 bps it still stands well below the post election peak of 136 basis points back in December.
 
Any messaging there? I believe so.
 
Position: Short TLT.
 
Doug Kass fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
  • How valuations get stretched even more.
  • How he wouldn't lace up Nike as a long.

Click here for information on RealMoney, where you can see all the blogs, including Doug Kass'--and reader comments--in real time.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long AGN, CMCSA, FB and AAPL.

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